MoEnergy Soft Drink
MoEnergy is an energy drink that will target all age groups, but especially people who are physically more active such as sportsmen and women, sports fun and people who exercise regularly. In the U.S, there are over 100 brands of energy drinks; hence, MoEnergy seeks to enter a perfect competition type of market structure. Therefore, the drink will compete with many firms dealing with the same kind of drinks. However, the drink will have a few differentiating factors such as unique marketing strategies, creative packaging design, and additional nutritional value among others; that are aimed at helping the product to remain competitive.
Market structure – Perfect competition
A perfectly competitive market is a market structure where numerous firms offer a homogenous product. In perfect competition market, there is freedom of entry and exit. As a result, companies make normal profits and competitive pressure in the market leads to low process. In the energy drink market, firms are usually assumed to sell their products where the marginal costs meet the marginal revenue; a point at which a firm can make the maximum profit. Also, a perfect competition market offers goods that are substitutes for each other. In this case, the energy drink industry has many products, and the customers are free to choose any; depending on the price and their preferences. The figures below show the behavior of a perfect completion market. Figure 1 show how the energy drinks industry’s price is determined by the interaction between the supply and demand resulting in price “Pe”.
Fig. 1
Figure 2 shows how an individual firm maximizes profits at the point where output where MR = MC, at Q1 and Pe. However, in the long term the firms will start making reasonable profits.
Fig. 2
Hypothetical data
The table below shows a hypothetical price schedule of 16 oz can of MoEnergy. From the table, it is very clear that it is possible for the firm to reduce the price of the drink. However, it is not always that a reduction in price will have a direct (linear) relationship between the quantity of MoEnergy demanded. For that reason, the demand for the drink has to be influenced using other factors or the firm has to use other strategies to increase demand, which include non-pricing strategies such as advertisement and free samples.
Price Quantity Demanded (monthly)
26 10600
24 16500
22 33300
19 36300
16 38300
Table 1 – Price change against the quantity demanded
OUTPUT Price MARGINAL REVENUE TOTAL REVENUE TOTAL COST FIXED COST VARIABLE COST Marginal Cost AVERAGE FIXED COST AVERAGE VARIABLE COST AVERAGE
TOTAL COST
0 $90.00
1 $26 $26 $26 $130 $90 $40 $35 $90 $40 $130
2 $25 $24 $50 $155 $90 $65 $30 $45 $33 $78
3 $24 $22 $72 $150 $90 $60 $25 $30 $20 $50
4 $23 $20 $92 $290 $90 $200 $23 $23 $50 $73
5 $22 $18 $110 $270 $90 $180 $18 $18 $36 $54
6 $21 $16 $126 $125 $90 $35 $14 $15 $6 $21
7 $20 $14 $140 $280 $90 $190 $12 $13 $27 $40
8 $19 $12 $152 $160 $90 $70 $9 $11 $9 $20
Table 2 – MoEnergy production cost and revenue
From the figures in the table, it is clear that the higher the quantity of MoEnergy can produce, the lower the average cost. This means that the company can lower prices, since the high level of production results in lowered cost of production. As the marginal cost goes down, the total revenue goes up. However, production will only occur at the point where marginal cost and marginal revenue equal. In addition, the firm will employ three major strategies to lower its operational costs to maximize profits. These strategies are a reevaluation of complex expenses, negotiating for lower prices with the suppliers and outsourcing many services such as human resource management.
Price elasticity of demand (PED)
PED is used to measure the demand responsiveness to price changes. The PED of MoEnergy will be affected by several factors, which include availability of substitutes, consumer’s income, and the target market. Since there are numerous substitutes for energy drinks, any change in the price of the drink is likely to affect the demand for the product. For instance, an increase in the price is likely to cause customers to go for the other products whose price is relatively unchanged and low hence giving the competition an advantage. The opposite is also true. When the drink price goes down, more customers are likely to opt for it as opposed to the competition. Table 2 shows that an increase in demand when the price goes down. In table one; it is clear that a reduction in price has a direct impact on the quantity demanded.
“Price is very critical especially in a perfect competition market” (Campbell R. McConnell, 2009, p. 178). To determine the price of MoEnergy, many factors are considered. First, the price of the competing drinks. Since it is a new product, the firm will introduce it into the market at a slightly lower price than the competing drinks. This way, customers will want to try it out and compare the benefits versus the quality and benefits compared to other products.
Non-pricing strategies
Most firms use pricing strategies to sway customers but in a perfect competition market such a strategy might not work for the good of the firm. In such a case, there is a need to use other strategies that are more effective in increasing sales and eventually profits. The first strategy to increase the sales of MoEnergy is advertising. Since MoEnergy is a new product, advertisement will help in creating awareness among the target population. The customers will get to know about the product’s features, benefits and how different it is from the rest of the products in the market. Creating awareness increases the chances of increased sales.
Advertisement will also help in creating a presence for MoEnergy among the potential consumers. A powerful message and the firm’s slogan will be developed to reflect the company’s core beliefs and intentions to satisfy the customer through first class services. Regular advertisement will, therefore, play a big role in helping the drink to enter into the market. The firm will also engage in direct sales where the drink will be sold directly to the customers. This will, however, require detailed advertisements with the products details and contacts such as websites and direct lines to help customers place orders and make inquiries. Also, the firm will use advertisement to provide the customers with details of the products distributors and retail outlets. This type of advertisement will also target distributors and retailers who might be interested in stocking the product.
The other strategy is free samples. This strategy is usually associated with the risk that it is not guaranteed that after giving out the free samples that the company will see returns. However, this is a strategy the company will use to introduce MoEnergy into the market. Free samples will help to create brand awareness among the potential consumers. “Free samples will offer an opportunity for the company to get instant feedback from the customers who will sample the product” (Wogrin S., 2013, p. 301). The strategy will also help in winning the public confidence in the drink.
Conclusion
MoEnergy soft drink will not only target people who are usually physically active most of their time but it will target everyone in the target population since this product has been developed to cater for energy needs for all age groups. For this reason, the drink is expected to face stiff completion right from the introductions going forward. However, many strategies, besides pricing strategies, will be adopted to help the product enter into the energy drinks market. These strategies are an advertisement and giving out free samples.
References
Campbell R. McConnell. (2009). Economics. Retrieved from Campbell R. McConnell, ECO/561 (P. 175) website.
Wogrin S., S. (2013). Open versus closed loop capacity equilibria in electricity markets under perfect and oligopolistic competition. Perfect competition, 140(). http://web.a.ebscohost.com.contentproxy.phoenix.edu/ehost/detail/detail?vid=8&sid=ad15a2d2-09e5-44a0-8c74- 8e892fdfd1c4%40sessionmgr4001&hid=4214&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=iih&AN=90016093
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